The two missing elements are interest and taxes! Listen
to this:
Since it adjusts for liabilities, receivables,
and depreciation, operating cash flow is a more accurate measure of how much cash a
company has generated (or used) than traditional measures of profitability such as net
income or EBIT. Earnings before interest, taxes,
depreciation and amortization (EBITDA) is the best gauge to
evaluatiing a company's profitability based on net working
capital.
If you want a few
more definitions, here they are:
Interest: a fee
paid on borrowed assets. It is the price paid for the use of borrowed money, or, money
earned by deposited
funds.
Tax: a pecuniary
burden laid upon individuals or property owners to support the government, or, a payment
exacted by legislative
authority.
Depreciation: a
decline in the value of assets, and allocation of the cost of assets to the periods in
which they are
used.
Amortization: the
process of decreasing, or accounting for, an amount over a period of
time.
An additional link is
I
hope this information is helpful!
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